Cineworld stock price takes another hit on AMC-Universal deal

Shares of Cineworld (LON: CINE) have dipped a further 4% today following the deal between AMC Entertainment and Universal Pictures deal that cuts films run times in theatres.

Fundamental analysis: A new major hit for the cinema industry

A new deal between the AMC Entertainment and Universal Pictures primarily reduced the exclusivity of all motion pictures made by Universal Pictures and Focus Features from 75 days in theatres to just 17 days. 

After that period, the studio can screen its films on premium on-demand (PVOD) platforms such as Netflix, Amazon Prime Video, Disney+, and Hulu. With this deal, an old business format has been restored that will likely harm the cinema's earnings.

Filmgoers will now have to wait only 17 days to see new movies at home, rather than spend months waiting for films to become available on PVOD platforms. Hence, this will hurt the cinema's popularity in all likelihood. 

The AMC-Universal Pictures deal is likely the worst-case scenario for Cineworld, the second-largest cinema chain in the world, said analysts at Morgan Stanley.

The investment banking company had previously shared its calculations that the increase in streaming platforms represents a likely 10% to 30% risk to EBITDA for Cineworld, with earnings to see even a bigger blow in 2020 because of worse-than-expected revenue and profit for cinemas due to the pandemic.

The bank predicted that other film studios and theatres will likely make similar deals like AMC and Universal Pictures, ‘ending a decades-old theatrical model’.

Technical analysis: More selling interest generated

The latest news has facilitated a new selling wave for Cineworld stock. Compared to the period of early February, Cineworld share price plunged as much as 80%. In March, shares hit an all-time low at GBX18.29.

Cineworld share price has, in the meantime, recovered modestly, although these gains have evaporated on a prolonged opening of cinemas around the globe. The sellers will now target last week’s low of GBX34.64 as they try to push shares towards new 5-month lows.

Summary

Cineworld shares have plunged a further 4% following the new AMC Entertainment-Universal Pictures deal that shortens movies run times in theatres and hurt the cinema's earnings.